A term you will hear a lot when you are researching a mortgage, but what does it mean?
The ‘rate’ you are paying for your mortgage generally refers to the interest rate, the higher the interest rate, the more you are paying back. Whether it is Fixed or Variable is usually up to you, it is one of the options you have, and they are exactly as they sound….. A Fixed Rate means your rate, and your monthly repayments are locked in and stay the same, for the period in which you Fix. So a 3 year Fixed Rate mortgage means that for the first 3 years, your rate and the repayments you make stay the same every month. Most lenders are currently offering Fixed Rates from 1 – 10 years. When your fixed period runs out, you will automatically revert to the banks Variable Rate, but you do also have the option of fixing your rate with them again for another few years, or switching your mortgage to a different lender if they have a better offer.
A variable rate in contrast, is one that the lenders can move up or down, usually depending on the wider economic picture, and what the European Central Bank does with its interest rate (the bank borrows money from the ECB and lends it to you, so when the rate they have to pay goes up, the rate you have to pay goes up, and vice versa).
So what are the pros and cons…. Fixed Rates are often what we would recommend to people when they are first taking out their mortgager, it give you certainty and stability while you settle into your new home, there will be no nasty surprises. Currently Fixed Rate offers are almost all lower than Variable Rates. But in the Cons column you are locking yourself in when you Fix, so Variable rates could fall below your fixed rate over time. Also when you a Fixed, you can’t move to another lender for a Cashback Offer or a better rate offer, you are locked in.
So often most people will fix for shorter periods of time, 2,3 or 5 years, get a low rate and certainty for a while, but every few years be in a position where they can reassess and change thing if they wish. To find out what your mortgage options are, contact our team or your mortgage
broker today and have a chat. There could be simple savings out there for you!